SINGAPORE (Dec 20): Eight in 10 medical practitioners say Singapore’s healthcare system should focus more on disease prevention as Singaporeans live longer and are more likely to contract a chronic illness at an earlier age. Moreover, nearly half or 49% of the 203 doctors surveyed note that Singaporeans will find it harder to cope with health-related expenses, as the number of people with more than one chronic disease will increase with age. The illnesses include dementia, heart problems, osteoporosis, diabetes and cancer. The findings were highlighted in the “Healthy for 100? Healthy care in Singapore” report published in July by insurance provider Prudential group and the Economist Intelligence Unit.

Singapore is not alone in facing this situation. The United Nations estimates that the number of people aged 60 years and above worldwide increased more than two-fold from from 382 million in 1980 to 962 million in 2017. The figure is set to double and hit nearly 2.1 billion by 2050, the international body predicts. 

As a result, there has been increasing demand for healthcare services that are ‘elder-friendly’ and cost-efficient. Aside from healthcare companies, a growing number of non-healthcare providers are looking for investment opportunities in the silver economy, amid expectations of higher returns from meeting the needs of an ageing society.

Investing in eldercare

The long term potential of the ageing healthcare market has drawn interest from many non-traditional players. For example, media and property group Singapore Press Holdings in October entered a strategic partnership with asset manager, Bridge C Capital, to set up an investment fund focused on investing in aged care. SPH will invest seed equity of up to $50 million into the fund, while Bridge C will manage the properties it acquires in Japan.

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This follows the company’s existing investment in Orange Valley Healthcare, one of Singapore’s largest private sector operators. Orange Valley’s nursing homes were acquired by SPH two years ago in April 2017 and recently reported a 2.5% y-o-y growth in its bed occupancy rate. SPH believes that deepening its investments in the healthcare sector – through its entry into Japan and expenditure on aged-care technologies at Orange Valley, will reap higher returns. 

“Expanding overseas in markets with fast ageing populations such as Japan gives us a chance to expand our recurring income base, as well as build up our asset management capabilities in a growth segment,” notes Anthony Tan, deputy CEO of SPH. 

Investing in healthcare is a way to counter the decline in SPH’s media business. While the group does not break out its earnings from the healthcare segment, its full-year earnings dropped 23.4% to $213.2 million in FY2019 ended Sept 30, from $278.4 million the previous year. The decline comes on the back of poorer performance in its media segments as well as the absence of the one-off gain from the divestment of its treasury and investment portfolio.

Another atypical company interested in eldercare is Mainboard-listed, The Trendlines Group. An early-stage investment company, Trendlines invests in enterprises with innovative technologies in the medical and agricultural industries. It is seeking to deepen its presence in the healthcare sector by setting up a company that specialises in medical technology for elder care. It intends to use non-intrusive and non-invasive sensors to monitor the level and type of activity as well as the eating habits of the elderly. The sensors will also be customisable, based on the elderly’s needs, says Todd Dollinger, co-chairman and co-CEO of Trendlines. 

For instance, if a person has diabetes, the sensors will focus on food intake and the amount of insulin delivered by his insulin pump. All information collected will be monitored by healthcare professionals and will be made available to caregivers. “We are in love with market opportunities, so all we do is in response to true market needs,” says Dollinger.

 There has been a growing demand for elderly care technology, with forecasts by US-based BCC Research showing that the market will grow from US$5.6 billion in 2017 to US$13.6 billion ($18.4 billion) in 2022. For now, Dollinger says the technology will be rolled out in Israel at the beginning of next year and subsequently customised to the needs of Asian markets and be available in the region in 1H2020. Its latest focus on aged care follow its previous investments in urology, neurology, cardiology, diagnostics and women’s health.

Companies in the healthcare sector have also been on the lookout for more opportunities in the various niche sectors. In June, Hyphens Pharma International, a pharmaceutical and skincare solutions manufacturer and distributor, introduced the MAGNEZIX magnesium alloy metallic implant in Vietnam, under an exclusive distribution agreement with a German company called Syntellix. The implant is used to hold broken pieces of bones together for healing and growth, and is eventually reabsorbed by the body. “This serves to provide a better quality of life,” says Lim See Wah, the company’s chairman and CEO. He adds that the implant will benefit the elderly

For 3QFY2019 ended 30 September, the company announced earnings of $1.8 million, up 51.5% y-o-y. Revenue, in the same period, was up 4.2% y-o-y to $30.7 million, following higher transaction volumes. SAC Capital has a “buy” rating on the stock and a price target of 28.5 cents, banking on the fact that with greater public awareness and a shift towards a healthier lifestyle, there will be higher spending on healthcare and related products.

Hyphens Pharma International closed at 20.5 cents on Dec 16 - unchanged since the start of the year - valuing the company at around $62 million.

Hospital earnings drop

In spite of the increased interest in investing in the healthcare industry, hospital earnings were down this year for a multitude of reasons ranging from start-up costs at new ventures, to higher staff and operating expenses. Jarick Seet, Head of Small and Mid caps at RHB Investment Bank observes that healthcare stocks generally did not have a good year. “Except for those with their own catalyst (such as through a privatisation or take over), the share prices of healthcare stocks have been pretty muted,” he says. For now, he expects them to stay subdued in 2020 “unless there are changes to the regulations that can benefit medical players”.

In 3QFY2019 ended Sept 30, Raffles Medical Group reported a revenue of $130.5 million, up 7.8% y-oy, as it generated higher sales from insurance contracts, corporate clients, and higher patient numbers. However, the company’s earnings dropped 16.9% y-o-y in the same period to $13.6 million as its new hospital in Chongqing had yet to turn profitable. Higher staff and depreciation costs also contributed to the decline.

Given the time needed for Raffles Medical’s new ventures to “stabilise”, analysts from OCBC Investment Research are keeping their “hold” recommendations, with a price target of $1.02.

Similarly, Maybank Kim Eng Research’s Gene Lih Lai has cautioned that Raffles Medical “may need more time than expected to build brand familiarity and trust among potential patients to scale revenues over the longer term.” For now, Lai is keeping his “hold” call on Raffles Medical with a marginally higher target price of $1.07, up from $1.05 previously. “Upon seeing evidence of stronger than expected traction in China, we may revise growth expectations higher,” he adds. Thus far this year, Raffles Medical shares have fallen 10.9% to close at 98 cents on Dec 16. This values the company at just below $1.8 billion, and gives it a historical price-to-earnings ratio of 27.75 times.

Thomson Medical Group, meanwhile, recorded losses of $751,000 for 3QFY2019 ended Sept 30, down from earnings of $1.1 million the year before. On a fully diluted basis, this translates into losses per share of 0.3 cents, down from earnings of 0.4 cents each for 3QFY2018. Revenue contracted 28% to $8.8 million in 3QFY2019, from $12.2 million a year ago. The reduction was mainly due to higher inventory and consumables, staff costs and operating expenses. Year to date, Thomson Medical’s shares increased 1.64%, closing at 6 cents on December 16. 

Last but not least, IHH Healthcare, the largest Singapore-listed healthcare stock, suffered from poorer numbers as well. The company operates hospitals in Singapore, Malaysia, Turkey and India. For 3QFY2019, its revenue increased 33% y-o-y to RM3.8 billion ($1.2 billion), lifted by contributions from newly acquired businesses. However, the company was burdened by higher financing costs. Its profit after taxes and minority interests, less exceptional items of RM202.3 million, was down 35% y-o-y. So far this year, IHH’s shares, listed on both SGX and Bursa Malaysia, have remained largely flat. IHH closed at $1.76 on Dec 16, valuing the company at just over $15 billion.